Lessons - Angel Investing vs Crypto Investing | Chris Dixon - Entrepreneur, Investor, Cryptocurrency and Web3 Evangelist

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All listeners can save 30% off their first order. Just head to cornbreadhemp.com slash success and use code success at checkout. That's cornbread hemp.com slash success code success for 30% off your first order of these amazing gummies. In this lessons episode, discover the unique dynamics of investing in crypto and blockchain versus traditional angel investing. Learn why frontier tech demands a contrarian mindset and the power of earned secrets in uncovering breakthrough opportunities and understand how resilience and strategic support drive outsized outcomes in volatile markets. I'm curious when you're looking at when you're looking at investing in crypto blockchain, what are the similarities, what are the differences between traditional angel investing into any other category pick a category that's maybe maybe not as like bleeding edge. I mean ARVR is probably there's a lot there's a lot of bleeding edge tech and there's probably a lot of uncertainty as well. But yes, speak to that. I'm curious because I don't know I know a lot of investors. I don't know a lot of investors that are just so niche down and hyper focused on blockchain and crypto. So there has to be some differences and similarities. Yeah. Yeah. Well, I think you hit on one thing, which is when you're doing things kind of at the the quote frontier, people call some it's called frontier tech. There's a different approach generally because you're doing something that hasn't, you know, that hasn't that isn't as predictable. So just to, you know, like just generally when I do any of these kind of cutting edge sort of frontier, like when I did VR stuff or, you know, blockchain stuff or AI before, you know, back before chat GPT, you would have these, you're sort of dependent on these external factors. Like when will the generally these technologies kind of go through two phases. They have kind of an incubation phase where you have lots of early adopters. And like the case of blockchains, like they're probably like 30 million kind of hardcore users right now, which is sound like maybe a lot, but it's actually tiny on the scale, the internet. Now, and then you have a moment where kind of like chat GPT or the iPhone where you have sort of a breakout product and suddenly the the space transitions from from kind of this, you know, early adopter phase to going more mainstream. And so when you're in that early adopter stage, you just have to sort of behave differently. And so for example, you have to, you know, when you typical, if you're building a typical like accounting SaaS company, you might raise venture capital and land for like a two year kind of budget, then assume that if you hit certain metrics, you can raise more money. It's a very predictable financing market. If you do certain things, you can raise more money and it's much more stable. Kind of what the metrics need to be and the patterns. When you're in these emerging areas, it's, you know, you'll have these massive waves of like excitement and then kind of bull and bear markets. And if you get a bear market and you don't have the cash, you know, you won't make it, right? And so you just have to like operate. So like Coinbase, for example, they would be, they were very good at about this. They would just raise a lot of money and save it and then kind of endure through like tough times. You have to have a thicker skin and you have to be willing to kind of power through. I've seen just so many cases in my career or in technology where, you know, people that stuck with something ended up doing very well. Like so many of the entrepreneurs that you see today that are successful, you know, like sort of the outside view is like, there's some kind of overnight success when in fact they were just trudging through many different ups and downs. And so you just, so the entrepreneur needs to be ready for that. The investor needs to be ready for that. The, you know, the, the company needs to be structured, you know, you end up capital for that. You need to have the team for that. Does it just a different way of thinking about the world? They're sort of free, kind of, you know, pre growth, you know, kind of incubation phase and then mainstream breakout phase. I mean, that's the hard part. The good news, that's the bad news. The good news is when you do that and you're willing to do that, you tend to be one of the very few who are willing to do that. And that's how, you know, that's how you have outsized outcomes, right? That's how you have as an investor, outsized outcomes, that's how as an entrepreneur you do. If you just kind of follow the consensus, you know, if you're the, you know, if you're the 10,000 company building a wrapper on chat GPT, like, I don't know if that's, you know, going to be, like, that's just the consensus strategy, right? And so, yeah, to be right, you can't just be non-consensus and, you know, contrarian and wrong, but, but, you know, so, but that's to me the interesting part of technology. That's where I've always gravitated towards is kind of like, that's why I want to be at the frontier in doing that stuff. I assume that once this kind of, like, blockchains go mainstream, I'll probably move on to something else. And so, you know, there's just different, it's a different approach. There's a lot of value in doing the other thing too. I mean, we need people to, to kind of do, you know, do kind of later stage technology as well. And I think they're, they all have values. I'm not making a value judgment. I'm just sort of saying that this is where I'd like to operate. Hey, yeah, this is a very different way of operating. And I, it's a skill I developed and, and, uh, well, you done it well. You've done it. You've done this. If you had, you've had massive success. I'm, I'm also just curious. I mean, you've worked with, like, Mark and Dresden Benhorowitz, which, I mean, they're, you're a legendary investor. They're legendary investors. Um, I can ask you the lessons that you've learned. But I want to ask you the lessons that you've learned from them as well. I, yeah, I've learned a lot from them. So the first, you know, five years I was at the firm, we would just do, it was like very, it was a much smaller, we're now the firm's much bigger now. It's like 500 people back then. It was pretty small. And it's, they were, I don't know, if seven or five or seven above, so it would just sit around a table, like something entrepreneur would come in and then they would, you know, describe their, their business. And then we'd sort of sit around a table and discuss it and make investments. Um, and so I, it's hard to summarize all the very, I mean, I learned so much about just from them and just from entrepreneurs, all the different aspects of building a business. So like, for example, I'm not an enterprise software person, but I've sat in, I don't know, hundreds of enterprise, they have not thousands of enterprise software discussions and just learning all the details of organization building and sales development and just all the things you do there. A huge shout out to federated computer for supporting today's episode. Let me explain why I love federated computer, why they are friends of success story. They are changing the way businesses buy software because we all need software to run our businesses. I don't care what kind of business you're building, but the best business software doesn't have to cost thousands of dollars each month. So federated computer replaces a lot of the software that you're using right now. 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They actually have the patents to prove it and they are taking a hammer to the ridiculously high prices of business software that all entrepreneurs are suffering from. Federated computer, they've been a long time supportive success story. They're offering 30% off. They're already low prices when you use a coupon code freelance. So go to www.federated.computer to begin saving 75% or more on your monthly software costs. That's www.federated.computer. These folks are going to do you a big favor. Check them out. Yeah, I think we have a lot of kind of broad investment kind of lessons. I guess I'm one of Mark and Ben's favorite phrases is invest in strengths, not lack of weaknesses. And so what does that mean? It means almost every interesting startup will have issues. You know, when you're investing, you know, when you're doing what we do, which is investing in early stage, obviously once you're in bidier or something makes other issues are done, but then you're worth two trillion dollars. But when you're doing kind of early stage investing, almost by definition, you're going to have things that are messed up. And if you look for the biggest danger you can make in venture capital is looking for some startup that's sort of good on all metrics. What you really want is a startup that's great in a few things and probably really messed up in a bunch of other areas. And specifically, you know, what do you grade at? Like what we really bias heavily towards, and this is another kind of Mark and Ben thing, but is is technical product focused entrepreneurs. So what we look for are people that have a deep insight. We like to say an earned secret. I think that's originally a pewter teal phrase. The idea is that kind of most, you know, it's almost by definition a startup is a contrary idea, right? Because if you if you had an idea that was like, I want to build, you know, an iPhone with longer battery life, right? That's a good idea. But Apple knows that's a good idea, and they probably have a thousand people working, right? So almost by definition, in a way, a startup is a good idea that appears to be a bad idea because it appeared to be a good idea. All of these incredibly wealthy companies would be investing, right? So you have some kind of contrary insight, and that's usually that that's what Peter Teal calls a secret, but it's also an earned secret, because you don't just come to these things like walking down the street, right? You often come to them through, you know, years of of I've been working in the apparel industry, and I, you know, there's this thing I've discovered that's that's this crazy thing that needs to be fixed. And I have a way to fix, right? Or I was in a PhD program, and I developed a breakthrough way to do large language models. And now I'm going to go do that. You know, so it could be a technical secret. It can be a business secret. And so you want it. So you when you I think when you do venture investing, you want people that have those earned secrets, now those people that have those earned secrets, they're often they're not often people that know how to at first run a company, right? And they may have hired badly. They may have made some bad decisions. They may have bad press. They may have, you know, I don't know, financial issues like, right? And so if you kind of look at the mistake you can make as a venture investor is going and saying like, I want somebody who's got all buttoned up and everything's working fine. What you really want is someone who's got this sort of deep secret, who's obsessed with the problem, who has deep knowledge of the domain. And very likely the rest of it is sort of a fixer upper, right? And so that as a result, we structured the firm. This was a this was kind of a novel thing and really is kind of still somewhat novel in the venture industry, which is we'll find those great entrepreneurs and then we'll we'll layer in services that help them fix those other issues, right? So as an example, it's very unlikely that you're sort of the be like a brilliant inventor, but and also spend all your time out of conferences meeting and connecting with 4500 leaders. So we have a group of, you know, dozens of people whose job it is to connect you with people of Fortune 500 companies because we sort of assume that these technologists founders that we invested in won't already have that network. So we try to supplement their network. And so we just do a very, you know, we help them with legal and policy. We help them with recruiting. We help them the comms. We help them with financial stuff. And so so that that's kind of the core thing now. Now, what I described is very general. There's a lot of details. And this is like adventure as as like in some ways is like people talk about a fox in the hedgehog, you know, the hedgehog knows one thing, the fox knows many things. I think of the venture capital and startups as a fox thing. There's like a million little things to know and it's very hard to summarize all of it. And so and each domain will be different, you know, blockchain is different than consumer internet is different than enterprise software is different than Vintech. And each one has patterns and people and lessons. But that sort of broad framework, I would say, is something that, you know, I learned over the last 10 years. Thanks for tuning in. If you found this valuable, don't forget to hit that subscribe button so you never miss an episode. And if you want to dive deeper into this conversation, check out the links in the description to watch the full episode. See you in the next one.